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Fortune 100500
Strategy development of Low cost carrier on Russian market
Fortune 100500 2
2025 2020 2015
80
160
0
-80
9%
91%
:
: , Fortune 100500 3
40
60
80
21
2015 2020 2025
100
5
10
34
CAGR 27%
26%
Fortune 100500 4
100% Max. 49%
✗ ✓ ✓ ✓
✗ ✓ ✓ ✓
✗ ✓ ✓ ✓
✗ ✓ ✓ ✓
✓ ✗ ✗ ✓
1 2
: team analysis, open sources
Fortune 100500 5
0
100
200
2015 2020 2025
1
2
Domodedovo 342 138
Sheremetyevo 204 214
Vnukovo 306 112
Ramenskoye 2016 200 108
Yermolino 186 100
Russia
Moscow
2018
200286
571
108155
236
-30%
-50%
: case data, team analysis, expert.ru
,
1 2
6
Factor
Distance ( < 6000 km)
Pass. traffic (target occupancy rate)
Profit
Market saturation
3
16800
16900
25000
47000
58600
60000
66500
61000
57000
58000
58000
60000
63000
,
: Fortune 100500
Fortune 100500
1
7
2
1. Ownership
2. Operational leasing
3. Financial leasing
First year investments, M$
Annual payment, M$
93,3
9,3
9,3
0
9
12
Fleet upgrade flexibility
Range, km
6.850
6.100
6.230
5.765
Capacity
156
180
149
189
Model
Airbus A319
Airbus A320
Boeing 737-700
Boeing 737-800
CASM, Cents$
7,1
6,5
7
6
Exists in Transavia
Fuel consumption, l/pass/100km
2,95
2,61
2,71
2,68
Max. take-off weight
75
78
70
79
Price, M$
85,8
93,9
78,3
93,3
Since May 2015 it will be restricted to include aircraft registered abroad into Air Operator Certificate
Additional limitations
*
: case data, open sources, tem analysis
3
0
20
40
60
80
100
4
54%
56% •
•
•
65%
20%
15%
70%
15%
15%
: ,
Sales costs, RUR/pass
56,5319,2
-82%
Offline Online
2
1
Fortune 100500 8
9
1
Ancillary revenue sources, %
2
Ancillary revenue share, %
: ideaworkscompany.com, Fortune 100500
Fortune 100500
•
•
4,45
6,55
4
5,55,56
0
2
4
6
8
Projected Transavia Aeroflot
9%
75%
1
2025 2020 2015
80
160
0
-80
16%
2
3
: 10
Actions 2015 16/18 19/21 22/25 Investments
Lau
nch
Negotiation with strat. partner n/a
Negotiation with hub operator n/a
Registration / certificate n/a
Airports negotiation n/a
Aircraft leasing prepayment € 23,4 mln / 3 jets
Staff hiring and training € 150 000
Marketing activities € 1,1-1,5 mln/year
IT infrastruct. setup and support € 600 000 / year
Op
era
tio
ns Domestic flights
Maintenance, Repair
IF airports negotiation
International flights
Sale
s o
rgan
iz. Website sales
Office sales
Metasearch
GDS and Mobile App sales
Fortune 100500 11
1
1
2
3
4
5
6
7
Emergence of new competitors
Development of High-speed railroads
Wellness decrease
Delay in law passing (3 aircraft for reg. flyer)
Delay in strategy realization by the partn.
Jet Fuel price fluctuation
Significant decrease in occupancy rate
Impact of Risk
Pro
bab
ility
of
Occ
urr
ence
Occupation of unique routes.
Focus on internal marketRoute optimization
Occupation of unique routesPrice war, first comer.
Operation as air charter
Hub creation in Vnukovo or Yermolino
Risk hedging
Route optimizationAdjustment of price policy
2
3
45
6
7
Ways of mitigationRisks
Fortune 100500 12
Fortune 100500
Attachments
All six destinations are served on daily basis is order to meet the demand and occupancy rate targets
Fortune 100500 15
Plane 1
6:00 – 10:00
Plane 2
Plane 3
10:00 – 14:00 14:00 – 18:00
Moscow
Moscow
Moscow
Krasnoyarsk Moscow
Omsk Moscow Chelyabinsk Moscow
Perm Moscow Anapa Moscow
6:00 8:00 10:00 12:00 14:00 16:00 18:00
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
Low-cost carrier project is realistic until 2025 due to cost-cutting in four main categories
Priority cost elements that can be decreased: Online sales development will allow LLC to cut sales costs by 82%
Airport service costs can be decreased by 30% by the year 2020 due to:
Sales costs, RUR/pass
Operating costs, %
61%
60000
80000
100000
Ост. РФ Москва
-20%
Avg. airport costs, RUR./flight*
1. Infrastructure development
2. Usage of low-cost airports in Moscow
since 2016
3. Usage of low-cost airports abroad
-35% -30%
Relative airport costs per flight
56,5319,2
-82%
Offline Online
30%
20%
17%
14%
10%4%3%2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Кейтеринг
Админ. расходы
Экипаж
Организация продаж
Лизинг и амортизация
ТО и ремонт
Аэропортовое обслуж.
Топливо
Leasing of modern homogeneous fleet will allow LLC to cut leasing and maintenance costs by 45% and 56% respectively
Costs for B737-800, $/flight time
72
100
2477
8
-45%
192
350
271
616
-56%
1 2
3
16
60%
80%
100%
40000
50000
60000
70000
80000
90000
Москва Раменское, Ермолино
Moscow Low-costairport
Moscow Russia AVG
Catering
Admin. costs
Crew
Sales
Leasing + depreciation
Maintenance
Airport
Fuel
Leasing Maintenance
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
Fortune 100500
Profitability of the destinations depends on the traffic, current average level of prices and costs
Everything in RUR/Flight
Profit is the main factor of deciding on the route map
Fortune 100500
1
17
Novosibirsk
Kazan
Omsk
St. P
Krasnodar
Sochi
Yekaterinburg
(Passengers × Price + Additional revenue) – (Airport costs + Fuel + Staff + Leasing + Sales) = Profit
Direction Total revenue Airport
expendituresFuel Sales Staff
Leasing + Amortisation
Other Profit
St. Petersburg 377,592 124,859 109,213 9,077 16,028 122,696 114,562 -34,954Krasnodar 731,366 116,339 232,886 9,077 16,028 122,696 149,108 25,068
Sochi 639,001 142,336 281,822 9,077 16,028 122,696 171,588 -30,749Yekaterinburg 435,683 134,642 291,544 9,077 16,028 122,696 172,196 -91,324
Novosibirsk 871,366 149,804 540,784 9,077 16,028 122,696 251,517 -64,277Rostov-on-Don 551,865 120,951 179,533 9,077 16,028 122,696 134,486 -9,090
Mineralnye Vody 682,570 143,718 263,520 9,077 16,028 122,696 166,512 -11,465
Samara 551,865 120,392 169,638 9,077 16,028 122,696 131,349 -5,093
Ufa 435,683 111,011 219,430 9,077 16,028 122,696 143,473 -54,715Krasnoyarsk 1,423,230 126,331 646,651 9,077 16,028 122,696 276,235 66,533
Kazan 580,910 119,566 135,431 9,077 16,028 122,696 120,839 16,845
Kaliningrad 624,479 113,774 221,664 9,077 16,028 122,696 144,972 -1,097Chelyabinsk 813,275 146,790 286,669 9,077 16,028 122,696 174,378 16,952
Perm 842,320 109,265 233,984 9,077 16,028 122,696 147,315 59,986
Irkutsk 1,379,662 132,184 836,366 9,077 16,028 122,696 334,905 -21,057Omsk 1,132,775 165,658 434,949 9,077 16,028 122,696 224,522 47,013
Tyumen 464,728 148,043 342,918 9,077 16,028 122,696 191,629 -107,548Volgograd 464,728 112,103 165,103 9,077 16,028 122,696 127,502 -25,818
Anapa 871,366 114,923 254,182 9,077 16,028 122,696 155,072 58,643Surgut 943,979 186,523 466,238 9,077 16,028 122,696 240,169 -28,456
13%
30%17% 9%2% 30%20%
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
Major assumptions used in calculating profit model
Fortune 100500
1
18
LLC/Legacy price ratio 80%
Additional revenue 13%
Occupancy rate 85%
RUR/EUR exchange rate 65
WACC 7.5%
Max flight hours per crew, h/month 100
Max flight hour per aircraft, h/day 12
Staff costs calculations 2
Total flight hours per month 300
Required numbers or crew 3
Captain wage, RUR/month 500,000
Second pilot wage, RUR/month 300,000
Flight attendant wage, RUR/month 60,000
Number of flight attendants 3
Total crew wage, RUR/month 2,940,000
Taxes and benefits, RUR/month 1,470,000
Total crew expenditure, RUR/month 4,410,000
Other costs calculations 3
Fuel cost = Fuel consumption [t/km] × Distance × Price [RUR/t]
Airport cost = MTW × AP(1,2) per MTW + Pass × AP(1,2) per pass
Sales = 56 RUR/passenger, in case of 100% online sales
Other cost account for 30% of total cost
All fixed costs are allocated per flight
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
Source: case data, team analysis, open sources
Organizational structure of the new LCC should be designed to leverage competitive advantages of parent company
19Source: team analysis, open sources
IT, Operations and Procurement should be centralized in Transavia CV to maintain low cost level and share know-how
1
Transavia CVCEO
COO IT developmentTransavia Rus
CEO
ProcurementEngineering
and maintenance
Not exclusive
Marketing and sales
HR
Legal
Finance and planning
Public relations
External relations
Operations Officer
IT implementation
Management control
Functional control
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
Fortune 100500
20Source: case data, open sources
Route “Paris-Aurillac” is operated by Air France’s branch Hop! and generates about 30% of average operational profit per flight within the company…
…however during previous 6 years the traffic has increased by 30% while the number of flights remained the same, that suggests operational profitability increase of the route.
Moreover, the fleet is based on ATR-42 500, which does not comply with selected strategy of LCC development in Russia
ATR-42 500 B737-700
Capacity, people 50 149
Range, km 1500 6230
CASM, U.S. cents 10 7
Cancellation of “Paris-Aurillac” is pointless due to increased operational profit of the route for Hop! (Air-France KLM) and incompliance of the fleet, operating on the route and projected for new Russian low-cost carrier.
1 2
3
327
1 143
-71%
Industrial average
Paris-Aurillac
26 60623 958
26 62026 585
21 89120 427
2011
2010
2009
2014
+5%
2013
2012
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
Fortune 100500
21Source: open sources
Breach between target audience of Nice and clients of low-cost carriers1
Relatively low traffic and its lowering dynamics2
There is a potential for growth and market penetration after 20183
Attachment 1 Attachment 2 Attachment 4 Attachment 5 Attachment 6Attachment 3 Attachment 7
400
200
Fortune 100500